Tanzania Pension Reform Program

Structuring a Development Policy Operation

Bocconi University

MSc Politics and Policy Analysis

Background and Context

  • 5 Pension Funds: NSSF, PSPF, PPF, LAPF, GEPF
  • Coverage: Only 6.5% of the workforce
  • PSPF Deficit: Caused by unpaid pre-1999 liabilities
  • Systemic Issues: Inefficiency, poor coordination, inequitable benefits
  • 2014 Harmonization Rules: Introduced to unify parameters
    • Accrual rate
    • Lump-sum limit
    • Minimum pension floor

Key Challenges (Diagnosis)

  • Financial sustainability: growing deficits, pre-1999 liabilities.
  • Efficiency: fragmentation across five funds.
  • Benefit design: excessive lump-sum withdrawals.
  • Coverage : exclusion of informal sector and vulnerable groups.

The DPO Logic

  • DPO = budget support linked to reforms
  • Prior actions: binding reforms before disbursement.
  • Triggers : next steps for subsequent DPOs.
  • Reforms sequenced from soft → hard (institutional setup → retirement age increases).

Proposed Reform Pillars Table

Pillar 4 – Expand Coverage and Inclusion

Objective: Extend pension protection beyond the small formal sector and reduce old-age poverty.

Reform Step
DPO-I Prior Action Approve policy framework for voluntary schemes targeting informal workers.
DPO-II Trigger Pilot voluntary enrollment mechanisms via mobile payments and ID systems.
DPO-III Trigger Expand TASAF social pension and integrate informal workers into national coverage.
Outcome Indicator Coverage rises from 6.5% → 12% of workforce.

Sequencing and Political Economy

  • Short term (soft): Harmonization, lump-sum limit, studies.
  • Medium term: Apply new rules, begin consolidation.
  • Long term (hard): Raise retirement age, finalize merger, close PSPF gap.

“Reform success depends on government capacity, stakeholder buy-in, and managing political resistance.”

Expected Outcomes

  • Improved fund solvency (reduced liabilities).
  • Streamlined administration and better governance.
  • Lifetime income protection through annuities.
  • Broader and fairer coverage.

Conclusion

Key takeaway:

Pension reform in Tanzania requires balancing fiscal sustainability, political feasibility, and social equity over time.

Open questions:

  • How can fiscal sustainability be achieved without undermining equity?

  • Should harmonization precede consolidation, or can both move in parallel?

  • What are the risks of delaying hard reforms?

  • How can international actors maintain reform momentum?

Public Economics — MSc Politics and Policy Analysis, Bocconi University